Chief UK Economist at Oxford Economics, Andrew Goodwin, anticipates that the Bank of England may postpone the expected interest rate cuts until 2025.
Previously, Goodwin assumed the Bank would begin reducing rates from May of the following year. However, his forecast has now shifted to a delay until the year after that.
The Monetary Policy Committee (MPC), known for its relatively sceptical view of potential supply, is specifically concerned about the inflationary effects of a tight labour market. Although Goodwin predicts a slight increase in unemployment over the next year, he believes it’s unlikely that much spare capacity will become available.
The sustained core pressures will likely keep headline inflation above the 2% target until early 2025. The enduring inflation overshoots from recent years are expected to remain vivid in the minds of not only policymakers but also the financial markets.
Considering this context, Goodwin suggests that the MPC will lean towards caution. It will likely wait until there is compelling evidence that inflationary pressures are effectively managed before it contemplates policy relaxation.
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